AIB returns to profit in first quarter as loan-loss charge drops

AIB said on Thursday that it returned to profit in the first quarter of the year, as it set aside a lower loan-loss provision than taken in early 2020 when Covid-19 first ripped through the Republic.

The lender booked a €50 million net loan impairment charge for the first three months of 2021, less than a quarter of the €210 million provision taken for the same period last year.

"As we look to the remainder of the year, we expect a strong recovery as the economy reopens and the rollout of vaccines gathers momentum," chief executive Colin Hunt said in a trading update ahead of the bank's annual general meeting on Thursday. "We are confident about the outlook and our ability to generate sustainable shareholder returns and meet our medium-term targets by 2023."

AIB said it is “confident” about achieving its full-year guidance, which sees a return to profit for the full year, following a €700 million net loss in 2020, as well as a resumption of shareholder dividend payouts.

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The group is in talks to acquire €4 billion of corporate and business loans from Ulster Bank, which his retrenching from the market, and agreed in March to buy back Goodbody Stockbrokers, a firm it sold a decade ago during the financial crisis. AIB said its negotiations on setting up a life and pensions joint venture with Great-West Lifeco, parent of Irish Life, are "progressing well".

Total income fell by 4 per cent in the first quarter, with net interest income decreasing by 13 per cent and other income growing by 36 per cent.

Mr Hunt highlighted at the bank’s virtual agm, which lasted less than 40 minutes, that the first quarter saw “mixed trends” in new lending, with personal lending in the Republic slumping 30 per cent on the year amid Covid-19 restrictions, while activity in the corporate sectors was “stronger”. Overall new lending declined 7 per cent to €2.3 billion. Mortgage drawdowns rose 7 per cent to €500 million.

‘A good start’

“AIB has made a good start to the year,” said Davy analyst Diarmaid Sheridan, adding that the bank’s trading is in line with market expectations.

The bank said it expects to incur exceptional costs in 2021 of about €250 million, “including costs relating to business restructuring, voluntary severance and the ongoing operational costs of the tracker mortgage programme”.

AIB has booked more than €600 million of provisions to date for its role in the industry-wide tracker mortgage scandal, including €70 million for an expected Central Bank fine.

Meanwhile, the bank said on Thursday that the volume of customer deposits that are being charged negative rates has increased from €4.7 billion at the end of 2020 to €10 billion, currently. AIB said two months ago that negative interest rates will end up applying to about €16 billion of deposits over the course of the year as it lowers the savings threshold at which the charge applies to €1 million.

The European Central Bank is currently charging banks a rate of minus 0.5 per cent for excess deposits placed with the institution under a negative-rates policy dating back to 2014, which is designed to push banks to lend more to boost economic activity and inflation across the euro zone, with limited success.

Goodbody Stockbrokers analyst Eamonn Hughes described the trading update as “solid”, with the loan impairment figure coming in slightly lower than expected, and the general commentary “hinting at more positive momentum as the economy reopens”.